Loan officers and brokers are welcome to listen in and comment and help answer tough questions. I've done these chats before, and people ask questions that stump me. You professionals can help. Here's a query I fielded on Boston.com last year:

"I have been renting my condo for just over a year while I was unemployed and couldn't refi because my condo was considered an investment property. I am employed now and planning to move back in soon and I'm wondering if it will immediately be considered a primary residence again after I move back?"

No freakin' idea -- but I'll bet that's an easy one for the loan officers in the house.

Sometimes I kinda-sorta know the answer but I'm tentative about replying. I'm talking about questions like these (also asked at my most recent session on Boston.com):

"I was recently (formerly) working with a broker who told me that because my home's appraisal isn't what it used to be (and therefore no longer had the equity I once had) that I would be stuck with PMI on any refinancing I did. Is that true or are there other options?"

And: "What about no points no closing cost refis, aren't those just like free money you can save?"

A lot of questions -- probably the majority -- are from people who either want to know where I predict interest rates will go, or they need help translating their question into numbers that can be plugged into a mortgage calculator. I'm bad at predicting the direction of mortgage rates but I'm always glad to teach people how to convert those mean ol' mathematical word problems into numbers that can be entered into a mortgage calculator.

We're not going to answer questions about investment properties. Nor will we answer tax, probate, estate planning or legal questions.

Short, straightforward questions get priority. Don't make me reply, "TL;DR." My 14-year-old son has dared me to do that.

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But first, I'll assume (perhaps wrongly) that the principal and interest on the second loan amount to $75.45 a month ($12,000 at 6.45 percent for 30 years).

OK, so you owe $128,000 and you have an interest rate of 2.875 percent this year. Let's assume it goes up to 4.875 percent in 2012, then 6.875 percent in 2013, then 8.875 percent in 2014, then 9.5 percent in 2015. But heck, let's say you never pay that top rate because you sell the condo after paying 8.875 percent for 12 months.

This year, your monthly principal and interest are $531.06 for the first. This is easy to figure out using the mortgage calculator. You pay $75.45 a month for the second mortgage, for a total of 606.51 a month in principal and interest.

In 2012, monthly payments rise to $752.84. In 2013, to $916.32. In 2014, to $1,093.88. Multiply 'em all by 12 and you get $40,434.60 in principal and interest payments over four years. I didn't click on the "Show/recalculate amortization table" button, but you can run the numbers, click that button, and see how much equity you build annually under this scenario.

Contrast this with consolidating both loans and refinancing $140,000 at 3.2 percent. That gives you monthly principal and interest of $605.45. Click that amortization button and it says that after four years, or $29,061.60 in four years. And after those four years, your balance is a little under $128,000, meaning you've built about $12,000 in equity.

MK

June 13, 2011 at 1:03 pm

Hi, I owe $128k on first mortgage & $12k on a second for a vintage condo in Chicago that is likely worth about $189k. My 7yr ARM just reset in May, and I'm now paying 2.875% on the first mortgage (the rate was 4.5% in 2004). The second loan has an interest rate of 6.45%.

If I can get 5/1 ARM for about 3.2%, should I refinance? I hope to sell four yrs from now, but who knows what housing market will be like then. Worse case, the rate resets each year adding 2%, never to exceed 9.5%

It seems tempting to secure the rate, but then the loan resets for 30 years, so I would be paying more in interest and less in principal, right? And I pay to pay that lump sum of $3k or more in closing costs. Is it worth it when I'm most concerned with building equity? I have about 26% equity currently.

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